Below target inflation provides continuing cover for rates to be kept on hold – EY ITEM Club

18 February 2014

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  • CPI below target for first time in more than 4 years
  • Inflation is likely to remain below target for some time to come….
  • …which will provide cover for the Bank to keep rates on hold well into next year

Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on today’s inflation numbers:

“These numbers are welcome news and should be the start of a prolonged period of below target inflation. Since the pressures from food and energy prices have abated, we have seen inflation drop back with weak underlying inflationary pressures coming to the fore, with the large amount of slack bearing down on margins.

“With the pound having strengthened and little sign of any pipeline pressures, we expect inflation to remain below 2% well into next year, boosting households spending power and helping to sustain the recovery.

“This, in turn, should give the MPC cover to pursue its aim of keeping rates low for a prolonged period. With inflationary pressures subdued, the Bank will be able to wait until it has seen evidence of a sustained pickup in real wages and greater balance to the recovery and we expect it to leave rates where they are until Q3 2015.”